However, the deal is far from straightforward as GFI had announced a deal in February with venture capital group Apax Partners to sell a 27% stake for 56m euros ($76m) in a move designed to raise expansion funds. GFI had planned to issue shares with equity warrants to Itefin Participations, a holding company controlled by funds managed by Apax, which said it does not intend to acquire control of GFI.
GFI shareholders were set to vote on the Apax approach at an extraordinary general meeting on May 21, by which time they will now also have to weigh up the Fujitsu bid. Fujitsu’s offer is dependant on GFI rejecting the Apax deal, and if that happens, Fujitsu then needs to needs to gain approval from two third of GFI shareholders to get the green light.
Fujitsu Services has not reached a formal agreement with GFI, but described its approach as friendly, and said that it remains in talks with GFI president Jacques Tordjman. It is offering 8.50 euros ($11.56) per share plus 3.15 euros ($4.28) per warrant, which represents a premium of 19.6% over its closing share price of 7.11 euros last Friday. GFI has not commented on the interest from Fujitsu.
GFI’s shares rose almost 18% to 9.94 euros after Fujitsu’s approach was revealed, taking its market capitalization to 414m euros ($563m). The company’s shares have risen steadily from a 52-week low of 4.73 euros last July on the back of strong organic revenue growth in its domestic market.
In the 12 months ending December 31, 2006, GFI increased its net profit 69% to 18.9m euros ($26m) on revenue that rose 16% to 633m euros ($861m) and highlighted SAP and Oracle migration projects as a key growth area. The company also benefited from a restructuring program targeting its North European units, which saw it dispose of its operations in the UK 18 months ago.
GFI is the fifth largest indigenous IT services vendor in France based on 2006 sales, behind its larger rivals Capgemini, Atos Origin, Sopra and Steria. It has 8,400 employees supporting clients including BNP Paribas, EDF and Vodafone.
After consistently struggling around the turn of the century under its former moniker ICL, Fujitsu Services has now delivered several years of improved financial performance. The company boosted its presence in Germany at the end of the last year with the 82m-euro ($112m) acquisition of TDS, but the UK remains its largest market, accounting for more than 60% of total revenue.
Our View
It was no secret that Fujitsu was looking for takeover targets in France.
The company told Computer Business Review following its takeover of German SAP services specialist TDS last December, that its next priority was a successful shopping trip in Paris. Among the potential targets that Fujitsu Services looked at were infrastructure services vendor Devoteam, but its gaze has now fallen upon GFI – which may not be a bargain, but it would certainly fill much of the hole in Fujitsu’s continental capabilities.
Jacques Tordjman, the genial GFI boss who led the company’s MBO from outsourcing giant EDS in 1995, has successfully grown it into one of the largest suppliers in the French services market, but has struggled to follow in the footsteps of Capgemini, Atos Origin and Steria and establish GFI as a significant player in the UK, German, Nordic or Benelux markets.
The company failed in a bid to buy domestic rival Thales Information Systems in 2002, and although Tordjman said in February that the Apax deal was designed to give GFI the funds it needs to reach the 1bn-euro ($1.3bn) revenue market in three to five years, Yves le Gelard, Fujitsu Services’ corporate development director noted that a Fujitsu takeover would take GFI from playing in the Premier League to playing in the Champions League.
Fujitsu Services justified the move for GFI by saying that it is receiving more requests from clients for it to support their operations across continental Europe, and the fit between Fujitsu and GFI looks a good one.
Fujitsu makes the bulk of its UK revenue from large infrastructure outsourcing projects, whereas GFI is much more focused on the applications level, providing consulting, systems integration and applications management. Fujitsu said it has 3,500 applications experts compared to 7,000 at GFI, and there is also minimal overlap between the client lists of the two companies.
While there is significant potential for Fujitsu Services to utilize the GFI business to provide continental support to its own UK customers, it will find it more challenging to sell its infrastructure outsourcing proposition to GFI’s customer base. French organizations remain much cooler towards outsourcing than their UK counterparts.
As well as adding bulk in France, GFI would also bring to Fujitsu some sizeable operations in Italy (where it made full-year 2006 sales of $85m), and Iberia ($125m), as well as a small offshore sourcing center in Morocco. Fujitsu Services said it continues to look at other ways of expanding its low-cost sourcing capabilities, with more acquisitions a possibility.
Fujitsu has been on the front foot in the IT services sector, with acquisitions in North America as well as Europe in the last 18 months aimed at reducing its reliance on its sluggish domestic market. The parent Fujitsu organization is aiming to generate half its revenue outside Japan within two to three years, from a current level of around one third.
If Fujitsu’s disparate IT services units are looked at as a whole, their combined annual revenue of $20.5bn ranks it as the world’s third largest services vendor in the world. A successful takeover and integration of GFI would, for the first time, put it well on the way to becoming a genuine pan-European vendor.
